Lennox International Inc. (NYSE:LII) Q4 2022 Results Conference Call January 31, 2023 9:30 AM ET

Company Participants

Alok Maskara - CEO

Joe Reitmeier - EVP, CFO

Conference Call Participants

Gautam Khanna - Cowen

Nigel Coe - Wolfe Research

Joe Ritchie - Goldman Sachs

Steve Tusa - JPMorgan

Julian Mitchell - Barclays

Jeff Hammond - KeyBanc

Operator

Welcome to the Lennox International Fourth Quarter 2022 Earnings Conference Call. All lines are currently in a listen only mode, and there will be a question and answer session at the end of the presentation [Operator Instructions]. As a reminder, this call is being recorded.

I would now like to turn the conference over to Alok Maskara, CEO. Alok, please go ahead.

Alok Maskara

Thank you, Ashley. Good morning, and welcome. I hope everyone is having a good start to 2023. It was nice to meet many of you face-to-face during the Investor Day on December 14th. Thanks for attending and sharing your feedback. Turning to Slide 2, a reminder that during today's call, we will be making certain forward-looking statements that are subject to numerous risks and uncertainties, as outlined on this page. Please refer to our SEC filings available on our Web site for additional details. Before we begin, I want to express my gratitude and appreciation to all of our employees who enabled us to deliver record financial results in 2022. Last year, our dedicated employees improved our customer experience while facing significant supply chain disruptions. This enabled us to reestablish our cadence of gaining residential market share. I want to take this opportunity to also thank our dealers and customers for their loyalty to Lennox. We will continue to improve our service levels while maintaining the best HVACR products and solution in North America so that we can continue gaining share in the future.

Now please turn to Slide 3 where I want to highlight four key messages. First, we are proud to report solid fourth quarter results that capped off another record year for Lennox. Q4 revenues of $1.1 billion and full year revenues of $4.7 billion were both up 13% year-over-year. Strong price execution and continued volume growth enabled us to set new records for both quarterly and full year revenues. Q4 adjusted earnings per share of $2.63 and full year EPS of $14.07 both grew 12%, establishing a new record of full year EPS. Second, we successfully transitioned our product portfolio to meet the new minimum regional efficiency regulation that went into effect on January 1, 2023. We believe that our superior design and solid execution has put us in a strong position to win share during and after the transition. Third, we ended the year with fully replenished finished goods inventory levels to support our customers through the SEER transition. In addition, we are also carrying higher level of raw material safety stock to mitigate the impact of ongoing supply chain disruptions. Given this, our 2022 free cash flow was $203 million, which was below our expectations. We are undertaking countermeasures to improve our cash flow forecasting and remain committed to converting 90% to 100% of our net income into free cash over the long term. Fourth, our 2023 full year outlook remains unchanged, and we still expect revenue growth of 0% to 4% and an EPS range of $14.25 to $15.25.